Ministry in £1bn ferry deal fiasco

A CONTROVERSIAL £1bn contract to build and operate six ferries for the Ministry of Defence is still being underwritten by the taxpayer - even though British yards lost out to German rivals because the Government wanted to do the deal under the Private Finance Initiative.

Though the first vessel has been launched by Germany's Flensburger shipyard, Financial Mail has learned that the MoD has still not finalised the private finance contract.

It is 18 months since the MoD selected the AWSR consortium as its preferred bidder for the lucrative 20-year contract.

AWSR picked German yards to build the ships. The MoD argued that a PFI deal was better value for the UK economy than placing all the shipbuilding work with domestic yards, which would have saved hundreds of jobs.

But the MoD has already bent the private finance rules to place orders for two of the six ferries with Belfast's Harland & Wolff yard to save that company from going under.

The failure to secure a watertight deal with the AWSR consortium will add to concerns that private finance was used as little more than a mechanism to remove debt from the national balance sheet at the expense of UK industry and its employees.

An MoD spokesman said that the protracted negotiations reflected the complex nature of the deal.

Initially, the AWSR consortium wanted to hire foreign crews when the ships were not being used by the MoD. But now agreement has been reached that British seamen will man the vessels at all times.

The spokesman said: 'Completing the details always takes time. We wanted to get the ships in service on schedule, so we went ahead with the orders even though the private finance contract had not been finalised.'

Others say the best option would have been to give the work to UK yards such as Cammell Laird on Merseyside.